Joel G. Nettesheim, CPA
SVA Certified Public Accountant

A few months ago, a business owner wanted to sell his company for a minimum price of $1 million.  When we evaluated his business, we found that its current market value was approximately $550,000.  Disappointed?  That’s an understatement.

Every business owner knows that a successful transaction requires the buyer and seller to agree on a value.  But business owners often do not know how much their own business is worth.

The value of a business could be computed by using a multiple of “normalized” cash flow.  Normalized cash flow is the cash generated by the business using only arms-length transactions.  The value of a business could approximate three to five times (if not more or less) the business’ normalized cash flow.  The multiple used is based on the type of business and the factors associated with the business.

The immediate questions we pose to a business owner preparing to sell:

• What is the source of your profitability and cash flow?
• How can you improve cash flow?
• What’s the likelihood of repeating that cash flow?

Understanding and communicating to prospective buyers about the source and stability of cash flow will improve your opportunities to sell at the price you want.

Wondering what happened to the business owner who wanted to sell his company?  He is working hard to improve his cash flow so he can achieve his $1 million selling price goal in the next 18 months.  Call SVA to learn more.

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Joel G. Nettesheim, CPA, is a principal and member of the business advisory services group at SVA Certified Public Accountants.  He practices in the Milwaukee office of SVA, where he can be reached at (262) 923-5150 or nettesheimj@sva.com.

Tags: accountant, cash flow, growth

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